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Foreign Investment, Domestic Investment and Economic Growth in China: Does Foreign Investment Crowd in or Crowd out Domestic Investment?

Author

Listed:
  • Najid Ahmad

    (School of Business, Hunan University of Science and Technology)

  • Mouna Hdia

    (University of Evry and EconomiX University of Evry)

  • Hong-Zhou Li

    (Dongbei University of Finance and Economics)

  • Jianlin Wang

    (Dongbei University of Finance and Economics)

  • Xian-Liang Tian

    (Wenlan School of Business, Zhongnan University of Economics and Law)

Abstract

This study assesses the effects of foreign direct investment (FDI) on domestic investment and economic growth, in addition to the extent to which foreign investment either crowds in or crowds out domestic investment in China. Yearly data from 30 Chinese provinces for the period 2000–2014 has been used. Pedroni and Kao tests confirmed the existence of long-run relations. We found positive and significant effects of FDI and domestic investment on the economic growth of China using DOLS, FMOLS and GMM estimators; however, domestic investment made a higher contribution to the growth and development of the Chinese economy. As regards crowding in or crowding out, FMOLS showed a neutrality hypothesis, while DOLS and GMM demonstrated that FDI crowded out domestic investment. We conclude that the effects of FDI on domestic investment (in other words, on the economy) are not always favorable.

Suggested Citation

  • Najid Ahmad & Mouna Hdia & Hong-Zhou Li & Jianlin Wang & Xian-Liang Tian, 2018. "Foreign Investment, Domestic Investment and Economic Growth in China: Does Foreign Investment Crowd in or Crowd out Domestic Investment?," Economics Bulletin, AccessEcon, vol. 38(3), pages 1279-1291.
    • Handle: RePEc:ebl:ecbull:eb-18-00308
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    References listed on IDEAS

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    Cited by:

    1. Faisal Mehmood & Muhammad Atique & Wang Bing & Hameed Khan & Henna Henna, 2021. "Infrastructure and sectoral FDI in China: an empirical analysis," Post-Print hal-03583884, HAL.
    2. Biswajit Maitra, 2021. "Relative role of external debt, FDI, and domestic investment in economic growth: evidence from Sri Lanka," International Journal of Economic Policy Studies, Springer, vol. 15(2), pages 329-347, September.
    3. Hieu Thanh Nguyen & Hiep Ngoc Luu & Ngoc Ha Do, 2021. "The dynamic relationship between greenfield investments, cross-border M&As, domestic investment and economic growth in Vietnam," Economic Change and Restructuring, Springer, vol. 54(4), pages 1065-1089, November.
    4. Faisal Mehmood & Muhammad Atique & Wang Bing & Hameed Khan & Henna Henna, 2021. "Infrastructure and sectoral FDI in China: an empirical analysis," Insights into Regional Development, VsI Entrepreneurship and Sustainability Center, vol. 3(2), pages 160-175, June.

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    More about this item

    Keywords

    Multinational enterprises; Economic growth; China; DOLS; Crowds out;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy

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